I didn't mean to imply that I would expect to make money from buying gold (if that's what you mean). Even if gold prices were expected to drop, I'd still be interested in buying it as an insurance policy. No matter how severe a crisis, once the dust settles, gold will always be worth something, for reasons I don't understand.
It has also been claimed there is a ponzi scheme in paper gold, i.e. instruments may not actually be physically backed, so when things go pear-shaped and you ask for physical delivery, you will have to fight other investors over legal ownership. http://www.businessweek.com/news/2011-12-12/hsbc-sues-mf-glo...
Given recent banking scandals, anything is possible. Caveat emptor!
Central banks are known buyers at the highs and sellers at the lows. Part of their mandate is "financial stability", and up to and including backstopping out-of-favour assets (like, say, mortgages). I see central banks buying gold as a way to stop a precipitous decline in gold as money rotates sectors.
Then again, this theory happened before this Cyrprus thing, so who knows for sure. Guess we'll see what kind of carnage happens next week.
No matter how severe a crisis, once the dust settles, gold will always be worth something, for reasons I don't understand.
The reasons is simple: gold has specific physical characteristics which many people for a very long time have regarded as suitable for use as physical money: principally, it's durable, rare but not too rare, recognizable, and easily divisible. That widespread subjective assessment is unlikely to change.
My point is that there's nothing you can do with your money to ensure that it always has value, regardless of the magnitude of the crisis. There's always some risk. You can store your money in insured bank accounts, but we can see how well that's working out in Cyprus. You can store cash under your mattress, but high inflation will destroy its real value. You can buy gold and hoard it in your home, but there's no guarantee gold will be worth much, or that you'll even be allowed to keep it (see Executive Order 6102). You can buy land and if the state fails and thugs with bigger guns decide they want it more you're screwed. There's nothing you can do to eliminate all risk, and we're seeing now that risks we though were minimal (failures of deposit insurance schemes in the western world) aren't so minimal after all.
'fiat' metal = metal by government decree??
fiat currency is intrinsically overvalued as it is valued by decree - by the threat of legal violence if you don't use it. There are no fiat metals.
Your pessimist view is at the extreme end of the spectrum. Individual fiat currencies have eventually failed ever since they were invented. Each time a currency dies there are winners and there are losers, but it doesn't go all Mad Max - a new transactional currency is used (Zimbabwe) or they lop a few zeros off and keep going.... Well maybe the dog food eating bit of Mad Max is true for the losers whose wealth was stored in the currency that failed.
Gold has little intrinsic value (well, you can make pretty things with it), its value is what people assign to it for the purposes of trade. So it most definitely is a fiat metal. If it was something like copper, there would be some intrinsic worth, but it isn't convenient to carry around while there is only so much intrinsic demand for copper!
Gold has failed just as often as fiat currencies have. When the Spanish conquered the Americas, the natives were amused that the invaders saw value in such a useless metal, but the amount of new gold that was discovered caused significant inflation back in the old world because Spain was just sitting back, buying everything it needed with its gold, and producing little of value.
Similar things happened when Africa came online as a significant source of gold, it got to the point that gold was no longer a stable representative of value, because anybody could just mine more! So you see lots of movement away from gold throughout the 20th century to something...more stable...fiat currency believe it or not. Countries now have control over their monetary policies, for better or worse, and are not beholden to some arbitrary metal.
Stockpile the BEST fiat currency at the moment. Over 6000 years of recorded history, which has the better record, paper money or gold?
There have been limited areas and limited times where even gold has been temporarily worthless. The Venn diagram of those times/places has always been within a much larger time/place where paper money has also been useless.
This smacks of digital archiving arguments. No consumer level digital media format has ever been popular for more than a couple decades, therefore some will tell you that any digital storage is literally useless. Folks who know what they're doing just replicate/transfer into the new format every couple years. You need to do that with your fiat currency. Right now a bank account in Cyprus is looking like a pretty stupid idea. I am sure we'll be able to bracket that with times in the past / future where gold was a dumb idea... it just won't be today. Minimization of transaction/conversion cost is crucial.
Gold has some pretty serious storage costs that shouldn't be overlooked. Apparently a lot of people want this supposedly "worthless" metal. Its fairly common to see anti-gold people trying to fight both sides of the argument simultaneously, which never turns out well.
Gold standards are horrible to base your country's economy on, while you are free to invest in gold yourself, its not like there isn't lots of risk involved. Mining increases gold supplies by about 2% a year anyways (you could also invest in gold mining companies if you want to speculate).
This has nothing to do with the digital archiving argument. This has to do with whether one arbitrary store of value is more sound than another arbitrary store of value. Money has only been around for 2500 years. Before that, gold was useful because of its rarity, but we might just as well have used large rocks to store/exchange wealth (and...there was an island that did that). The mezoamericans used beads. Heck, we can even start using bitcoin, which is based on the same rarity principle of gold.
And in this case, since Cyprus was on the Euro anyways, they couldn't deprecate their currency and were stuck giving everyone a haircut. They might as well have been storing gold in those banks.
ok I get what you're saying but your use of 'fiat' to describe gold is not the right word to use. fiat means by government decree. gold is valued by people as a wealth asset - and I agree it's value only comes from the knowledge that other people will trade something in the future for it - but the mona lisa is just a bit of cloth with some paint. pretty useless yet priceless - because there are many in line would would gladly exchange their vast excess of fiat currency for it.
I'm not arguing fiat currency will disappear, it obviously won't. It's just not the correct vehicle for saving. You must not save in the same instrument of the debtors. It leads to you being wiped out when the debtors default as the credit system grows beyond the ability for it to be paid back (eg: see China's trillions of US Treasuries - those are claims that the US economy cannot and will not service).
re: Spain: It was silver that was debased not gold I think.
re: gold failed: Physical gold didn't fail. Gold backed currency failed. Governments always print more tickets to gold than they own. The last big paper gold failure was Nixon in 1974 after they overspent on the Vietnam war.
I wouldn't recommend getting into paper gold to escape a currency collapse. Physical, unambiguously owned metal is the insurance, the vehicle that will transition you through to the otherside.
> China's trillions of US Treasuries - those are claims that the US economy cannot and will not service
The biggest holder of US debt is...the US. But ok, what choice did China have? If they kept the money at home, it would have collapsed the economy, investing in US treasuries at an effective -3% was the best they could achieve and have some degree of safety. Whatever you think of the US economy, foreigners still have a lot of faith in it. Only libertarians and republicans running for office think this faith is misplaced.
Now, who gets wiped out in a US default? We do the most, actually, but maybe the Chinese and Japanese hurt a bit also. No one is expecting that to happen, and US debt levels are not particularly high compared to the rest of the world.
> Physical, unambiguously owned metal is the insurance, the vehicle that will transition you through to the otherside.
You can't take gold with you to heaven. Ah, you meant the otherside of a collapse. If the economy completely collapses, no one is producing anything of value that they can spare for trade; your metals are still worthless. The law of supply and demand remains, and you just get screwed on supply.
If you really believe in metals, however, I strongly recommend that you move to Australia if you aren't there already. They have the largest reserves, take whatever we have out of the ground now and multiply it by 10. You can just become a miner and become rich, because of course, we can eat gold can't we?
ok - won't get into US default / debt argument as we are too far apart on that. I'll just say that it is a lot more than 'no one' expecting and preparing for a failure there. It is not a mainstream view - though mainstream didn't predict the GFC either.
Yes I meant the otherside of a currency failure. They are not as rare as you imply.
If the economy collapses completely then a lot of people will die...likely me included...as I am not a farmer. So I am assuming the economy will not collapse completely. Things will muddle through. Some will fair better than others depending on their understanding of the real nature of money, trade and its history.
We can't eat gold no...but I presume most of your assets are non edible too?
PS: It wasn't me that downvoted your last comment.
If I bought land, I could develop it and make it productive, I could also invest in science to grow more food, or whatever. If we want to hedge against economic collapse, I could invest in assets that are likely to survive the collapse, or better yet, are useful in helping a recovery along. So machinery, tools, a factory, a bakery? Or just upgrade my skills a bit.
But gold just sits there and does nothing, you are at the mercy of how others value it, since it doesn't have any productive value otherwise. Just like money actually.
The fact that gold is so useless is what makes it so perfect as a sink for deferred wealth.
Savers do not infringe on anyone else. If savers decided to hoard farm land...then farm produce would go up. Bakeries...same effect. Note I'm not arguing against investment but there is a difference between investment and saving. Saving is trying to maintain purchasing power that you have earned today and want to spend in the future. Investment is the deployment of your capital at some risk in order to possibly earn a return. Your prescriptions are all investments. I'm not a skilled businessman/investor - I'm a coder that just wants to defer my purchasing power that I earned today
.
What the savers currently do is hoard currency. The thirst for currency encourages and enables large amounts of debt to be written (as debt is the largest producer of currency via bank loans) which leads to cheap credit which leads to malinvestment.
In my comment history you will see a rather long entry I reposted from ZeroHedge. It's worth a read if you want to understand this argument some more.
> The fact that gold is so useless is what makes it so perfect as a sink for deferred wealth. Savers do not infringe on anyone else. If savers decided to hoard farm land...then farm produce would go up.
True, this is also why the Chinese continue to lend to us at basically a negative interest rate. Turns out gold doesn't really work that well for sovereigns (though China is #1 or #2 in gold mining).
> What the savers currently do is hoard currency.
Or they buy treasury notes, which is a bit better on returns (but not much).
> which leads to cheap credit which leads to malinvestment.
Definitely that's what we've seen so far. In that case, we are only arguing about the validity of gold as a store of value vs. other investments (including straight currency holds). There is nothing particularly special about gold, the only difference is that mining companies can decide the rate of inflation vs. governments (but Australia...).
BitCoin is much more fair in this case as the rate of mining is basically fixed by complexity. There is not much difference between accepting someone's bitcoin vs. their gold, in either case its about trust that you can exchange the currency down the line for something else.
Diversification and multiple pots seems like the best reasonable option. At the very least, one's investment portfolio should be internationally diversified. If you were really concerned, actually holding a portion of those assets in an offshore account might make sense. Regardless, rather than trying to protect all assets, the goal would be to maximize the chances that you would always be left with at least a sufficient amount.
when credit collapses (which is what this is) then the price of things bought on credit will collapse. Real estate will not be a good store of value in the short term. Long term it is an excellent asset but don't think it will hold value though this.
Bitcoin....you have seen the volatility on it lately? And the other week the miners were all asked to rollback a recent build because the crypto broke? Bitcoin is for speculation, not wealth preservation.
> when credit collapses (which is what this is) then the price of things bought on credit will collapse. Real estate will not be a good store of value in the short term.
I agree.
> Long term it is an excellent asset but don't think it will hold value though this.
Do you expect people will stop needing roofs over their heads?
I agree that real estate seems silly. But I don't mean swapping houses. I mean buying few properties over course of your life, renting them and passing them to your children. That never was a bad strategy and fortunes of few most wealthy families come from that.
You don't care how much property costs if you never intend to sell it. You just have to find poor bloke to live there and give you better part of his pay whatever it is.
> Bitcoin....you have seen the volatility on it lately?
Sure I bought bitcoin near its peak 2 years ago just before it crashed. Guess what. Today, I'm still having a profit on them because I never sold them.
> And the other week the miners were all asked to rollback a recent build because the crypto broke?
Oh my! That surely must have cause the price to plummet! No? Huh. I guess it's not such a fragile eggshell.
> Bitcoin is for speculation, not wealth preservation.
Trading bitcoin is for speculation. Buying and holding bitcoin is wealth preservation. Bitcoin is as durable as useful p2p network. Which have pretty decent track record.
Given the young age of bitcoin then I would still suggest that buying and holding is still speculation. Good luck to you. Keep in mind though that the scale of your savings compared to others. What if Bill Gates wanted to sink some of his savings into Bitcoin? It would be a market moving event. What happens when he wants to exit?
Buying a few properties over your life at this point in time - presumably via credit is a risky proposition. People need roofs over their heads but they need food more. For an interesting perspective on property during a currency event - read Gonzalo Lira's description on Chile
